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Last Updated : Oct 15, 2020 02:54 PM IST | Source: Moneycontrol.com

HCL Tech Q2 preview: Expect healthy sets of numbers, an upside revision to FY21 guidance

HCL's aggressive acquisitions have continued as the company has announced 29 transactions since 2015. The latest one is the acquisition of an Australia-based IT Services company, DWS for AUD162 mn.

 
 
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IT player HCL Technologies will release its September quarter earnings on October 16 wherein it is expected to post a healthy set of numbers.

Brokerages expect HCL to report a broad-based, across service lines growth in most geographies and verticals.

The company is also expected to announce an upside revision to FY21 guidance. Deal momentum, cloud-led adoption, attrition levels and increment/promotion cycle will be the key things to watch out for investors when the company comes out with a Q2FY21 scorecard.

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HCL's aggressive acquisitions have continued as the company has announced 29 transactions since 2015. The latest one is the acquisition of an Australia-based IT Services company, DWS for AUD162 mn.

Kotak Institutional Equities expects a 14.6 percent year-on-year (YoY) jump in adjusted PAT and a 5.2 percent YoY jump in revenue.

Kotak expects a 3.7 percent growth on a sequential basis in constant currency (CC) and model cross-currency tailwind of 1.8 percent.

"HCL Tech provided an intra-quarter update indicating strong execution and momentum will drive revenue growth of at least 3.5 percent quarter-on-quarter (QoQ), higher than 1.5-2.5 percent growth rate guided for in July 2020. We forecast QoQ growth rate of 5.2 percent in IT services, 6.8 percent in ERD and 5.6 percent in products business," Kotak said.

Kotak expects HCL's EBIT margin at 20.8 percent, up 30 bps QoQ, led by better absorption of costs due to growth and elimination of supply-side constraints on revenues.

"We expect the company to retain 1.5-2.5 percent sequential revenue growth guidance for December 2020 and March 2021 quarter on an organic basis. The company may add another 1 percent to March 2021 growth guidance after the proposed acquisition of Australia-based, DWS Ltd," Kotak said.

Kotak underscored that capital allocation will be an area of focus.

"We expect investor focus on—(1) outlook on products business—the Street does not share management's optimism on its resilience, (2) sustainability of demand after the positive intra-quarter update, (3) large deal pipeline and the secret sauce of success in mega-deal closures, (4) sustainability of the recovery in ERD services noting that 50 percent of revenues accrue from late-cycle asset-intensive segments, (5) evolution of digital capabilities and success in integrated deals and (6) whether the company will continue its aggressive acquisition strategy," Kotak said.

As per the estimates of brokerage firm Motilal Oswal Financial Services, HCL Tech may report a 5.8 percent YoY growth in revenue while adjusted PAT may see a 16.9 percent YoY jump.

Edelweiss Securities expects HCL Technologies to post robust dollar revenue growth of 6.3 percent QoQ and 4.5 percent in constant currency. On YoY terms, Edelweiss expects dollar revenue growth of 0.7 percent.

"HCL Tech should also be the key beneficiary of 1) core transformation; 2) higher cloud adoption; and 3) digital adoption. We also expect the company to upgrade its outlook for the rest of the year from earlier guidance of 1.5-2.5 percent to at least 2.5-3.5 percent for Q3/Q4 FY21," Edelweiss said.

Edelweiss also expects HCL Technologies to post modest margin expansion of around 80bps QoQ, enabled by better cost-control and efficient execution.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Oct 15, 2020 02:54 pm
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